“Half the money I spend on advertising is wasted;
the trouble is I don’t know which half.”
— John Wanamaker
Does that sound like you? If so, don’t be (too) ashamed. You’re not alone.
One survey conducted by Dental Economics found that more than 50% of dental practices don’t track the results of their marketing efforts effectively. Based on what we’ve seen, it’s closer to 90% and the remaining 10% are fibbing.
Without tracking, you could be wasting even more than half of your money. But it doesn’t have to be that way. Here’s a quick primer on how you can determine your practice’s marketing return on investment (ROI) and know if you’re spending your marketing budget wisely.
The simple definition of marketing ROI is how much profit you gain from your efforts divided by your expenses. There are two different ways you can look at that ratio.
Short term ROI looks strictly at immediate profitability, usually a particular campaign or channel like pay-per-click or radio. The simple representation of this formula is…
ROI% = ((Revenue – Cost) / Cost) x 100
Simply take the amount of new patient fees you generated from your marketing (revenue) minus the amount of money you spent (cost) and divide that difference by the cost. Multiply the result by 100 to convert to a percentage.
Long term ROI takes a more meaningful look at your promotional investment, since it considers both the immediate and ongoing revenue you will generate from each new patient you acquire over the entire time they remain active at your office. That calculation is a bit more complicated, but we do have an easy alternative.
First things first, there are some key pieces of data you will need to accurately calculate your long term ROI.
About Your Marketing
About Your Dental Practice in General
With all your data in hand, it’s time to pull out the calculator. Remember the simple formula we used above?
ROI% = (Revenue – Cost) / Cost x 100
That still works, but we need to dig into the Revenue component a bit deeper.
First, you need to calculate your Lifetime Patient Revenue (LPR).
LPR (Lifetime Patient Revenue) = Average Number of Years Patients Remain Active at Your Office x Annual Revenue per Patient
Successful practices also get a number of referrals from happy patients, so we need to factor that in with a Patient Referral Multiplier (PRM).
PRM (Patient Referral Multiplier) = Annual Number of Patient Referrals / Number of Active Patients
So, your total Lifetime Patient Value (LPV) equals:
LPV (Lifetime Patient Value) = LPR + (PRM x LPR)
Okay, next we can calculate the long term Revenue.
Revenue = Number of New Patients x LPV
Now you can go back to the original formula and plug in your Revenue and Cost values to calculate your ROI.
ROI% = ((Revenue – Cost) / Cost) x 100
Simple, right? No worries, we have a better way.
If you don’t happen to be a math geek, you can also take the information you gathered and just plug it into our handy Dental Marketing ROI Calculator. Easy peasy.
Once you have your ROI value, it’s time to figure out what it means.
So, the moment of truth. A good return on investment for dental practices is generally considered to be 300-500% or better, depending on how mature that office’s strategy is. If your ROI is higher than that, terrific! Go ahead and pump money into that profit generating marketing machine.
If you fall below 300%, it would be worthwhile to take a closer look at your marketing efforts. Sometimes, disappointing numbers are just the result of poor tracking, and you may actually be getting better results than you think. (Yes, that’s the optimistic outlook.)
If you think your numbers are reasonably accurate, it may take some digging to figure out exactly where you’re leaking profits, but generally, there are two ways to improve your ROI.
If your overall ROI is low, you may be dumping money into one or more strategies that aren’t producing results. You can apply the same calculations to individual efforts to find the culprit, just make sure the number of new patients and cost are specific to that marketing campaign.
Cost is most often inflated by a poor lead conversion process. If you are generating a good number of prospective patients, but not a lot of actual appointments, investing the time and effort to train your front desk staff on patient conversion may be the solution.
It’s also possible that you aren’t getting as much value from your patients as you can, possibly because they aren’t staying with your practice very long, they aren’t referring new patients, or they simply aren’t getting treatment or preventive care as frequently as they should. Providing an outstanding patient experience tends to solve all of those problems, and doesn’t cost you a penny.
Find out if you’re half right or half wrong! Grab your data and try our Dental Marketing ROI Calculator today to get an immediate assessment of the effectiveness of your marketing.